The shares of a company held by its respective owners may be sold or transferred at any time, provided that the rules and procedures set forth in the company’s constitution and local business regulations are followed.

Transfers of ownership of private limited companies in Singapore are thus effected in the form of transfers of shares because limited liability companies are owned by the ownership of their shares.

The reasons to sell or to transfer company shares are therefore as follows:

The transfer of ownership of shares involves both a transferor and a transferee, the former being the existing shareholder who is transferring his shares, while the latter is the intended recipient (individual or entity) of the shares.

In all likelihood, performing this task without error will require experienced company secretarial services in Singapore, but understanding the basic rules and concepts will be helpful in preparing for and managing such a transfer, and more importantly, in ensuring that the shareholders follow the correct procedures so that the transfer cannot be challenged as invalid.

As a preliminary step, the basis for the transfer must be clear. This may not be necessary where the transfer is a gift, for example. However, depending on the situation, you may need to advise the transferor to have a lawyer prepare a contract of sale for the shares (for example, if the transferor is selling 100% of the shares of a private limited company, it is essential to have a proper purchase agreement).

Most importantly, this contract must specify the sale price. The sale price may not be so easy to calculate if, for example, the amount to be paid is to be adjusted for future profits of the company. Sometimes, however, the price to be paid is fixed in advance. This is the case when there is a shareholders’ agreement with “drag-along” or “tag-along” clauses.

For example, if the shareholders’ agreement contains a drag-along clause, if the majority shareholder(s) sell their shares to a third party, the minority shareholder(s) are obliged to sell their shares at the same price as well.

On the other hand, if the shareholders’ agreement contains a matching clause, the minority shareholder(s) can oblige the majority shareholder(s) to require the buyer to purchase its shares at the same price.

As a director, you should be aware of the basis to transfer company shares to help prevent fraudulent transfers.

When contacted by a shareholder who intends to transfer company shares, the board of directors should first inform the shareholder whether there are any restrictions on transfer.

For example, the articles of incorporation generally provide that transfer company shares can only occur with the approval of the board. If your corporation has adopted the wholesale model constitution, board approval for such transfers will be required (section 24 of the model constitution).

Although the step of obtaining board approval generally only needs to be completed when the transferor submits a transfer form to the board of directors, it may be wise for shareholders to discuss their transfer intentions with the board of directors at an early stage so that they have an idea of the situation in advance.

Sometimes, the transferor may face certain restrictions such as:

Pre-emptive rights may exist in the company’s constitution stipulating that before offering its shares for sale to third parties, the transferor must first offer them to all existing shareholders on a pro rata basis. Any transfer that is in violation of the restriction on transfer company shares may be rescinded or declared void. Shareholders, after receiving a notice of transfer, must sign a consent to waive pre-emptive rights if they decide not to exercise them.

If the transferor is selling a majority interest, but the buyer does not want to buy the minority shareholders’ shares (under a drag-along clause), the buyer should talk to the minority shareholders beforehand. In this case, it may be advisable to ask the minority shareholders to waive their exit rights by means of a waiver of exit rights. Formally settling this matter in advance will prevent the transaction from being disrupted later on. The board of directors should ensure that any “drag-along” or “tag-long” clauses have been complied with (or that any rights under such clauses have been waived), even if this is primarily the responsibility of the transferor.

There may be a provision in the company’s constitution which gives the directors discretion to refuse to file a notice of transfer company shares. Even in this case, the directors are required to act in a fiduciary capacity in the best interests of the corporation. For a refusal to be effective, it must be exercised by an affirmative resolution of the board of directors. If the corporation refuses to register the transferee, it is required under section 129(1) of the Corporations Act to send a notice of refusal to the transferor and transferee within 30 days.

The transferor’s share certificate is a document that indicates that the transferor has existing legal title to the share. If the instrument to transfer company shares is in good standing and the corporation has the old share certificate, the corporation must file a notice of transfer with AIDA.

The corporation will then be required to issue the new share certificate within 30 days of filing the notice of transfer. If the corporation fails to do so, the transferee may put the corporation on notice to remedy the failure. If the corporation still fails to issue the certificate within 10 days after service of the notice, the transferee may obtain a court order to compel the corporation to do so under section 130AE(4) of the Corporations Act.

If, however, the company still does not have the certificate, section 128(3) of the Companies Act provides that the company must, by notice in writing, require the person in custody or control of the certificate to produce it within 7 to 28 days.

Although the step of obtaining board approval generally only needs to be completed when the transferor submits a transfer form to the board of directors, it may be wise for shareholders to discuss their transfer intentions with the board of directors at an early stage so that they have an idea of the situation in advance.

In the context of a transfer of company shares, a certain number of administrative formalities must be respected, such as

1. Having an instrument of transfer: This is a document that indicates the transferor’s agreement to transfer his shares to the transferee, and the transferee’s agreement to accept the shares from the transferor. A witness is then required to sign the document. If the legal persons sign the instrument of transfer, they must use the common seal and authenticate the document. If the transferor or transferee is a foreign entity, it may be necessary to amend the instrument of transfer.

2. Have a written resolution of the board of directors and a certificate of appointment of the corporate representative if the transferee or transferor is an incorporated company. This formality demonstrates that the person who signed the instrument of transfer has the authority to do so on behalf of the corporation. However, in the case of individual shareholders who cannot sign the required documents, the corporation has the option of preparing a form of proxy. Using this form, shareholders can appoint a proxy to sign on their behalf.

3. Maintaining a share transfer worksheet: The company should prepare the worksheet based on its latest audited accounts or management accounts. This is a share transfer document required by IRAS to determine the stamp duty for the transferred shares. This duty is calculated on the basis of the purchase price or market value of the transferred shares, whichever is higher. The sheet contains information on:

4. Paying stamp duty and making a written request for transfer: Once the transfer of shares has been completed, stamp duty must be paid to IRAS within 14 days. The instrument of transfer usually indicates whether the transferor or transferee will pay the stamp duty but if the parties have not agreed on this, the transferee will have to pay the stamp duty by submitting a share transfer form to IRAS. Stamp duty is generally 0.2% of the purchase price or the market value of the units, whichever is higher. Stamp duty for instruments of transfer that have been executed outside Singapore must be paid within 30 days of their first receipt in Singapore.

5. Have a share certificate: If the board of directors decides to approve the transfer, the transferor (or the person holding the certificate) will receive a share certificate. The certificate must be surrendered to the corporation for cancellation or correction within 7 to 28 days of the written request for transfer. The board of directors is free to determine the exact time period, but it is preferable that the certificate be delivered promptly so that the board of directors can register the transfer in a timely manner.

6. Submitting a Notice of Transfer to ACRA: After receiving the share certificate, the board of directors will then need to submit a notice of transfer to the Accounting and Corporate Regulatory Authority (ACRA) via the Bizfile+ website. However, the company will need to check for any restrictions on the transfer beforehand.

7. ACRA updates the electronic register of members: The transfer will only be effective once ACRA has updated the firm’s electronic register of members (which all private firms must submit to ACRA).

8. Issue of a new share certificate: The company will then be obliged to issue a new share certificate to the transferee (or the person who will hold the new certificate) within 30 days of the transfer being registered with ACRA. This is usually the responsibility of the company secretary

9. Payment of fees: ACRA does not charge a fee for updating the society’s register of members. Nor is the society required to charge a fee for processing the transfer. However, a stamp duty is payable to IRAS. The stamp duty is calculated on the higher of the actual price paid for the shares or the actual value of the shares at a rate of 0.2%.

The actual value of the shares is calculated by first taking the net asset value of the corporation (net assets minus net liabilities as reflected in the latest annual financial statements) and dividing it by the total number of shares outstanding.

Then, after finding the value of each unit, multiply it by the number of units transferred. This is very simple when there are only common units outstanding. However, the party paying the stamp duty will need to consult with IRAS if there are multiple classes of shares.

Finally, the documents must be stamped on time. In case of delay in stamping, IRAS may levy a charge of up to $25 or 4 times the normal stamp duty payable, whichever is higher.

If transfers company shares can only take place with the approval of the board of directors, then the board must consider whether approval of the transfer is in the best interests of the corporation.

Indeed, in some cases there are good reasons to refuse the transfer:

1. The board of directors (which may be the company’s majority shareholder) believes that it will not be able to work effectively with the proposed new shareholder. This may be particularly true in smaller companies where the shareholders have a close relationship with the company’s management;

2. The board has real concerns about the ability of the proposed new shareholder to act in a manner that supports the company’s goals and values. This may be particularly true in companies with a small number of shareholders, where a significant level of shareholder input is expected to be required for various management decisions.

It would probably be inappropriate, however, to deny a transfer request in order to “punish” a transferor for “disloyalty.

When deciding whether to approve the transfer of shares, the board of directors must record its decision and the reason for its decision in a duly minuted board resolution. The board’s decision (and the reasons for it) must then be promptly communicated to the transferor.